Wednesday, March 11, 2015

Last year at the Tax Policy Colloquium, I thought that the balance had perhaps tipped a bit too far towards economics rather than tax law, from the standpoint of best serving our students and much of our audience. This year, partly due to deliberate adjustment but also due to the papers we happen to have drawn, it's been more "legal," and often less focused on tax law in particular than, say, constitutional and administrative law, than ever previously in the 20 years I've been doing this. I wonder if there is any broader trend here at work, regarding shifting interests in tax academic scholarship, or if it is just idiosyncratic.

A couple of weeks ago, we had Linda Sugin's paper on standing in tax cases. On March 24 (which is our next session, as March 17 falls during our spring break), Leigh Osofsky will have a paper on "categorical non-enforcement" - the scenario where an agency announces it will not be doing anything to enforce Rule X. That is basically an administrative law question with a strong constitutional overlay, although the paper's inquiry is situated in tax. And yesterday, George Yin's paper had us thinking about statutory interpretation and the Speech and Debate Clause of the U.S. Constitution (which protects federal legislators from being "questioned in any other place" regarding certain legislative acts).

"Protecting Taxpayers from Congressional Lawbreaking" is mainly an intensive case study. In 2014, the House Ways and Means Committee, during Dave Camp's chairmanship, publicly released confidential tax return information that pertained to 51 taxpayers in the tax-exempt sector. This related to publication of a referral letter to the Department of Justice regarding claims of criminal misconduct by Lois Lerner regarding audits of organizations, including in particular Tea Party entities, that were seeking tax-exempt status under Code section 501(c)(4), but would not qualify if, among other relevant aspects, they exceeded limits on permissible political activity.

As an aside, I feel justified in using scare quotes when referring to the IRS "scandal" in this matter. BTW, if the Tax Prof Blog keeps on counting off the days, Day 1,000 of the "scandal" is less than a year away now, and Day 10,000 - if I have counted correctly - will fall on August 16, 2040.

Why the scare quotes? There's a real issue here, which a Republican Congressional majority has wholly legitimate reasons to pursue in the face of a Democratic executive branch. Suppose, as would not surprise me at all, that there are plenty of 501(c)(4)s on both sides of the political divide that are violating, or at least closely skirting, the provision's limits on political campaign activity. Then this is a logical subject for administrative enforcement, subject to discretionary determinations about competing priorities in the face of limited resources. But it would be illegitimate, and potentially criminal, to target the groups on one side of the political divide more than those on the other side - or, for that matter, to target more "extreme" relative to more "mainstream" groups, in the eyes of the IRS beholder, even if left and right get equivalent treatment,

The problem, as in the endless Benghazi investigations, is that the desire to find some sort of a scandal vastly exceeds what has actually been found, and that the investigation arguably is not being conducted entirely in good faith. The Yin paper notes that, in the 1970s when the Ways and Means Committee investigated charges of political bias by the Nixonized IRS, it specifically looked for departures from neutral treatment of differing groups overall. This time around, there appear not to have been similar efforts to test for this in a fair and reasonable way, as opposed to hunting for hunks of red meat to toss to the base. (And often red meat out of context, so to speak.)

I suspect, by the way, that from the standpoint of Chairman Camp, engaging in tendentious grandstanding on this issue was a service worth rendering to the Congressional leadership, helping to preserve his discretion to pursue tax reform proposals that have won widespread admiration (if zero political traction, but that isn't his fault) without having the party leadership on his throat. This is the sort of tradeoff that people in real political situations often have to make. Camp may actually have made the right call, from the standpoint of what he could do that would have the greatest overall net public value. You have to pick your spots. And the need for such tradeoffs is a good example of why I personally would never want to be in politics, even as an appointee to the type of position that tax law academics sometimes can get.

But I digress. Returning to the topic of the Yin paper, the referral letter to the Department of Justice concerned supposed perjury by Lois Lerner. Before the time when she had admitted in testimony to being aware of Tea Party groups, she had been involved in email correspondence identifying some such groups, along with other groups (e.g., the World Wildlife Foundation, Miss America Foundation, and an organization that was directed aid to victims of the Boston Marathon bombing) that might merit auditing. But the Committee chose to make public, not just the referral letter, but confidential tax return information from the associated attachments, despite having the issue clearly raised. Indeed, the Committee met and, on a party line vote, agreed to let the whole shebang be published, including confidential information pertaining to all these taxpayers.

Seemingly none of these needed to be published in terms of the political aims being served, other than perhaps confidential info pertaining to the Karl Rove-affiliated Crossroads GPS, as to which the Committee probably could have gotten the group's consent. So why did they publish the whole thing, when it was urged that they shouldn't? Importantly from my standpoint, there doesn't seem to have been any particular malice towards the groups whose privacy rights at least formally suffered. A reasonable guess, as per the paper, might hold that the committee simply wanted to avoid any appearance of doctoring or limiting the public record, working closely with Crossroads GPS, etc.

The Yin paper agrees that no significant harm was done to anyone, and that probably no one even particularly cared (among the groups whose confidential info went public). But it takes the view that the precedent is potentially very dangerous, since the next time around a tax committee on the Hill could decide to publish other people's or entities' tax information out of pure malice or at least indifference. So it discusses at the end possible measures to discourage this, e.g., by giving the Joint Committee on Taxation a measure of gatekeeper discretion to try to keep the Members away from stuff that they don't need to see.

Much of the paper, however, focuses on legal analysis of whether the committee's release of the information was a felony under federal criminal law (more specifically, Internal Revenue Code section 6103). It concludes that the action WAS a felony, although not punishable in court due to the legal immunity that is provided by the Speech and Debate Clause.

Given the conclusion, which I agree with, that the Speech and Debate Clause would prevent prosecution of the dissemination even if it was a felony, the inquiry is a bit academic, so to speak. My go-to literary reference for such issues ("Would this be a crime if we could prosecute it, which we can't?") is the argument in Catch-22, between two atheists, regarding what God would be like - benign or malicious - if He actually existed, which they both agree He doesn't. But it would matter at least in a hortatory sense - one presumably shouldn't commit felonies, even if one can't be prosecuted, and if one does then one faces criticism on that ground. So let's take a look.

Code section 6103 criminalizes the release of confidential tax return information. But section 6103(f)(1) affords the tax committees access to such information, and section 6103(f)(4)(A) provides that such information "may be submitted by the committee to the Senate or the House of Representatives, or both." This in turn led, and was expected to lead, to general publication of the tax return information at issue in this case.

Suppose we accept that "may be submitted" means "may be released to the general public," although perhaps one could poke away at the distinction. The Yin paper argues that there is an inherent or implicit limiting clause here - the submission / release must be something akin to "reasonable," although the threshold might be lower than that (e.g., not entirely unrelated to the committee's performance of its legislative functions."

How could the release here fail to meet the unstated threshold limiting the power to cause the release of tax return information without commission of a felony? The paper's argument is that the referral had purely to do with a claim that Lerner had been committing perjury, and the other confidential info was 100% unrelated and irrelevant to that.

I tend to question this analysis. Again, the Ways & Means Committee was conducting a political war against the Obama Administration (but that's how our political system works), and the criminal referral on the narrow perjury claim was related to its broader argument of unfair and possibly criminal political bias by the Administration or at least the IRS. I believe that the committee fell very far short of establishing that, and acted in an irresponsible way that did not appear to reflect a spirit of good faith inquiry. But again, that is how our political system generally operates, and it's not only probably best, but surely the current state of U.S. constitutional and statutory law, that we give this sort of activity a very broad zone of non-criminality. The proper sanction for what the Committee did in the IRS "scandal" generally is that, in the court of public opinion, they should be viewed as having failed to make their case, and also as having acted tendentiously and irresponsibly. Or at least, that's my judgment. Others may disagree, and that's what political debate is all about. But action by the Committee that was pursuant to its side of the political war (here, presumably wanting to avoid any appearance of doctoring the public record, working hand-in-glove with a Rove group, etc.) is something that I'd be very reluctant to criminalize, even absent the Speech and Debate Clause.

What might I criminalize here, based on reading an implicit limitation of some kind into the provisions statement that tax return information "may be released." Basically, I'd look to stuff that was malicious and not related to lawful purposes such as investigating and debating claimed executive malfeasance. An example would be releasing confidential tax return information of people or entities that the Committee disliked, in order to embarrass or otherwise hurt them. But again, no hint of this in the case at hand.

One more statutory interpretation issue may further, in my view though not that of the paper, undermine the argument that the Committee's action was felonious albeit protected. For 50 years (though ending in 1976), the committee was empowered to submit "any relevant or useful information" to the Senate or House. But the words "relevant or useful" were stricken from the statute in a 1976 technical corrections bill.

This clearly seems to lay out the legal contours, pre-1976, of what would then have made a release of tax return information by a tax committee non-felonious. The information would have had to be "relevant or useful." In the paper's view, that threshold was not met in the present case, because the information was completely irrelevant to the perjury claim. (But on the other hand one could argue that it was relevant to the broader political war concerning bias.) But again, the most obvious way to interpret deletion of the words "relevant and useful" is as indicating that the limitation no longer applies. Post-1976, under this view, relevance and usefulness no longer need be shown.

The paper rejects this interpretation by arguing that there is no evidence that Congress meant to loosen the requirements for releasing tax return information, when they didn't indicate so anywhere, e.g., not in the legislative history, floor debate, or anything else, and when in general what the 1976 revisions did was tighten the rules governing transmission and release of tax return information, in response to the Nixon Administration scandals. Hence, it is more inclined to view "relevant and useful" as evidencing the prior scope of limitations that remained in place or if anything were meant to be tightened. E.g., suppose the reason for removing the words was that they unduly weakened the implicit limitation that follows from the context.

But it is hard to rule out the possibility that someone on the tax committees, during the legislative process in 1976, decided deliberately to strike those words in order to free the committees' hands a bit more, even though no mention was made of this and everyone else was getting the rules tightened. So I might view the prior existence and 1976 removal of these words as leaning against the paper's argument that the Camp committee's release of the tax return information was a (non-prosecutable) felony.

Although I thus tend to disagree with the paper's legal conclusion, I should note how refreshingly in good faith the argument is - not always something one can take for granted when people are discussing hot-button political topics, such as this one. Yin not only was appointed by Republicans, rather than Democrats, both times that he served on Capital Hill, but is well-known as having no political ax to grind. In addition, Tax Notes publicly quoted him in 2014, when the issue first came up but before he had researched it, as saying he couldn't comment on the merits without knowing more about them. Plenty of commentators on the political wars in Washington would have followed the Red Queen's lead, in Alice in Wonderland, when she says "sentence first, verdict afterwards."

About Me

I am the Wayne Perry Professor of Taxation at New York University Law School. My research mainly emphasizes tax policy, government transfers, budgetary measures, social insurance, and entitlements reform. My most recent books are (1) Decoding the U.S. Corporate Tax (2009) and (2) Taxes, Spending, and the U.S. Government's March Toward Bankruptcy (2006). My other books include Do Deficits Matter? (1997), When Rules Change: An Economic and Political Analysis of Transition Relief and Retroactivity (2000), Making Sense of Social Security Reform (2000), Who Should Pay for Medicare? (2004), Taxes, Spending, and the U.S. Government's March Towards Bankruptcy (2006), Decoding the U.S. Corporate Tax (2009), and Fixing the U.S. International Tax Rules (forthcoming). I am also the author of a novel, Getting It. I am married with two children (boys aged 24 and 21) as well as three cats. For my wife Pat's quilting blog, see Patwig’s Blog.